Banks “will absolutely not be disintermediated”

We got into another fine debate this week about bank disintermediation, a term used liberally throughout the 1990s and early 2000s when Web 1.0 came around, and then was dropped just as fast.

Disintermediation – taking the bank out of the customer delivery cycle and displacing it with a new provider.

As if that could happen.

We thought it might happen a decade ago and a decade later, nothing’s changed.

Sure, we have more banks competing with each other through these channels but Netscape, Intuit or Microsoft opening a pucker bank has not happened. Even Virgin and Tesco's threat of disintermediating the banks has failed.

Sure, we now have bank net and mobile channels, but there is no big new bank anywhere in the world.

Sure, there’s PayPal, but PayPal is just a layer on top of the old system. They’ve not replaced anything.

Maybe I’m just being a realist, but banks don’t need to worry a jot about the new payment providers.

PayPal will never be a serious player: Visa and MasterCard will crush them.

The threat of a BT or Earthport offering a secure transaction alternative to SWIFT is just a fallacy.

And the idea of Google, Facebook, Amazon, Apple or any of those guys becoming a serious contender in the financial servicing space is just smoking dope. They’re not in that space. They’re search engines and IT shops, not financial servicing processors.

As Nancy Pierce from HSBC put it yesterday: “we will absolutely not be disintermediated … who’s better to move the money than the banks?”

Or as Mark Buitenhek of ING put it: “banks need to reinvent themselves as they will be disintermediated by other banks, because we are the only ones that are trusted for secure transaction processing.”

So, for all my bleating about change and new entrants, don’t worry about them.

About Chris M Skinner

Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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Interesting point.
Some could wonder about that stance considering just the other day we were proclaiming the imminent demise of money. What’s the time frame for this prediction on the lack of necessary worry? 5 years term? 10? Ever?

I find this argument interesting, and the most enlightening comment of all is the quote “who’s better to move the money than the banks”. There’s a narrow world view ripe for disruption if I’ve ever heard one. What if it isn’t “money” we want to “move” around? What if our concept of money, or value, changes?
What if the idea of information about money becomes as important as the money itself (a la Mint)?
Banks will be disaggregated – in fact they are being disaggregated now, just in channels and in ways they discount.

I wonder if the music labels (Warner, EMI, Sony) did not believe the same until iTunes disintermediated them? Banks selling stocks and bonds before investment firms disintermediated them? Retailers before Amazon came on the scene? Hospitality providers until Travelocity / Experida / etc. came along?
Disintermediation does not require removing Banks from the supply chain, but rather removing Banks from the high value-added activities within the supply chain.
Banks have plenty to be worried about. Disintermediation is a threat, but I agree not the biggest threat to Banks in the next 2-3 years.

Fritz Thomas Klein

Let us keep two things separate:
Holding funds (or what ever you want to call it) and moving them.
Holding funds, as experience has so sadly shown, must be strictly regulated to avoid losses to the pubic. Any company holding ‘funds’ for others must be subject to the same regulation. This is the traditional side of banking, but new competitors will come up and must be subject to the this same regulation.
Moving funds is separate, although it is also connected to holding bfunds – often, you only hold funds because you want to move them. But moving funds can be subject to totally different rules and the field of competitors may be far wider.
The difficult thing will be to move funds without holding them for any time. Because if they are held for any time, regulation on holding them must kick in. So far, when moving funds has been really separated from holding them, as rightly said, this has only lead to another level ontop, as Paypal has shown.

Chris Skinner

Thanks for the comments guys, and the last one is particularly noteworthy as i guess that’s HBSC’s point: any institution that has money held on behalf of customers is not going to be disintermediated as demonstrated by the financial crisis, e.g. if you’re covered by guarantees of trust to keep funds safe, then you must be regulated and have a licence. To get into that space is not the space the disintermediators can move …
… until they’re big enough to buy a bank or become one (see PayPal).

Some good points here. I agree the key lies in the holding money vs moving money. Payments in the broadest use of the word will be more and more valuable especially as they are more and more tied to mobile apps including phone as a debit/credit card.
The ‘holding money’ aspect is different. Even the Paypals don’t do that. Their money sits with Wells Fargo. But as a commenter noted what if a money mover decides to register or purchase a money holder based on a radical new model yet to be determined.
In any event, banks cannot be disintermediated per se unless government changes the rules managed by the FSA, FDIC etc. A more likely secenario over time, is the fragmentation of bank services that chips away the banks’ revenue model.